The International Monetary Fund last week called for the introduction of a tax on banks to provide a fund for future bailouts – but the general feeling is one of opposition to the idea.
On the one hand, the IMF has stated that a financial stability contribution would allow liquidity in the future if banks are to be given bailouts, while European Central Bank President Jean-Claude Trichet warned that any tax or levy on banks “had to be carefully designed (so as) not to interrupt global financial reform efforts”.
The government is so far holding its cards close to its chest, but from comments given to this newspaper, it seems evident that Malta is not particularly enamoured with the idea – mostly because our banks are stable, solid, prudent, and perform well above the European average. In fact, the European Central Bank classified Malta’s banking system as one of the most stable in Europe.
While the government, as mentioned, is biding its time on the issue, it was also revealed in this newspaper that the idea has also been discussed locally at MCESD level.
Malta Union of Bank Employees President William Portelli said that the imposition of such a tax has to be relative – especially in Malta’s case where local banks’ resilience was crucial in staving off a full blown crisis – as other nations had to go through.
He also pointed out that the banking sector has the power to create and provide wealth. Wealth translates into growth and that creates jobs – putting a tax on banks could work against the idea.
The situation is quite simple to present in plain language. It boils down to the simple fact that banks in a country which have done so much to ensure that that they remained healthy should not be expected to pitch into a tax which is aimed at staving off collapse of much larger banks on the Continent which have not been prudent in their dealings.
The government seems to be silently backing this stance – and it is absolutely correct to do so. Financial services and banking are regarded as being one of the pillars of the economy and part of our vision for the future.
If the government has worked hard – together with banks and the MFSA – to create this industry and keep it healthy, why should it back a tax which local institutions feel is unfair on them?
The IMF will of course argue that the tax will be there for any bank which finds itself in difficulty in the future – and one cannot exclude the possibility that a Maltese bank might eventually need recourse to the fund. But it seems highly unlikely that this will happen. If Maltese banks managed to get through the crisis which rocked the foundations of almost every financial institution in Europe (and the world), then one can safely say that they know what they are doing and are unlikely to take risks which would jeopardize their, and their clients’ futures.
As we have said, the IMF believes that this ‘safety-net’ will safeguard us for the future. But there are others who believe that this is simply a reactionary measure which will not really have the desired effect. The consensus seems to be that such a system will restrict economic recovery – while at the same time encouraging risk-taking behaviour by banks – the same type of behaviour which got us into a mess in the first place.